business

DALLAS - In his corner office 32 floors above downtown, Blockbuster Inc. CEO James Keyes pulls out his phone and starts up last year's Oscar winner, "Crash," to demonstrate his vision of the movie-rental giant's future.

Customers, he said, will someday soon go to kiosks in Blockbuster stores to burn movies onto disks or download them directly to phones or other devices.

Technology is usually seen as Blockbuster's enemy. Why would anyone drive to a store when they can order online and have movies mailed to their homes or transmitted straight to their television sets by video-on-demand services?

Keyes said store rentals will be an important part of the business for at least five more years. And if Blockbuster can remain the world's biggest movie-rental company during that time, it will be in a stronger position to lead when viewers routinely download films, he said.

"This is an industry in transition, and a company that hasn't been able to keep up with that change," said Keyes, who became CEO in July.

"But Blockbuster is one of the best-known brands in the world. We've just got to find ways to use technology to make the company more relevant."

With nearly 8,000 stores, Blockbuster is synonymous with renting movies. But it lost more than $4 billion from 2002 through 2005. The Dallas-based company eked out a $54 million profit in 2006, but it lost money amid further sales declines in the first nine months of this year.

In an interview, Keyes outlined steps that the company will take by early next year as part of a plan to shore up its rental business and increase retail sales:

•In the next few months, Blockbuster will test new store layouts with kids' areas and beverage bars. It will also test "various forms of price increase," including incentives to return DVDs sooner -- although Keyes was careful not to call them late fees.

•Some stores will get kiosks that eventually could be used to download movies, although their functions will be more limited at first.

•Using a movie-download company that it just bought, Blockbuster will begin transmitting movies to customers' personal computers.

•The chain will test new sales of small electronic devices, soundtrack CDs and books to reduce its dependence on the stagnant movie-rental business.

Allen Klose, a former Blockbuster marketing executive, said the company has had mixed success with previous efforts to sell products, going back to the mid-1990s. He said that the company hasn't changed consumers' expectation that Blockbuster is just a place to rent movies.

Keyes, a former 7-Eleven Inc. CEO, will also have to steer the $5.5 billion company around immediate dangers, including financial losses, junk-status debt and a setback in its mail-delivery rental business.

Last week, Keyes got his first chance to explain his vision of Blockbuster to investors at a meeting in New York.

It did not go well, judging from the stock market reaction.

Blockbuster shares dropped 17 percent in three days, to around $4 -- about the price of a two-day movie rental.

Analysts said Keyes did a poor job of explaining how the company will overcome short-term challenges.